Consumers’ Home Price Expectations Fall for 4th Month: NY Fed Survey

U.S. consumers in April lowered their expectations for home price increases and earnings growth over the year ahead, according to a new survey from the Federal Reserve Bank of New York that provides fodder for Fed arguments in favor of keeping interest rates near zero.

The survey found consumers’ median expectation—that is, half were higher and half were lower– was for home prices to rise just 3.77% over the coming year, down from 3.81% in March and the latest in a series of monthly declines from 4.64% in January, the New York Fed said in the report, released Monday.

Consumers’ median expectation was for earnings to grow 2% over the year to come, the lowest rate this year. Employed respondents also lowered their average estimate of the likelihood of finding a job if they lost their current one, the New York Fed found.

Fed Chairwoman Janet Yellen recently flagged a “flattening out” of housing activity as a potential sign of concern for the central bank as it gradually winds down its bond-buying program, which aims to hold down long-term interest rates.

Top Fed officials, including Ms. Yellen, have emphasized weak wage growth and employment as signs that the U.S. economy is operating well below its full potential, and therefore still warrants the support of low interest rates.

Overall expectations of inflation over the coming year, which policy makers have indicated will be a key factor in their decision of when to start raising interest rates, held fairly steady at 3.3%, the survey showed. The Fed’s target for inflation is 2%, but price growth has been running well below that for some time.

The New York Fed survey also had some positive signs for consumers. Households on average expect their income to rise 2.64% over the coming year, the highest pace since August 2013. Household spending growth expectations rose slightly, the New York Fed said. Perceived credit availability did not change much over the April period.

The Fed in April further reduced its monthly pace of bond-buying to $45 billion. It has held official interest rates effectively at zero since December 2008.

The New York Fed’s Research Group began compiling the survey this year in collaboration with a national polling firm, interviewing some 1,200 people as part of a “rolling panel” where each respondent participates in the survey for a year.

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